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Merger of the Pacific Century
By Alysha Webb, Correspondent
There's lots of upside to the Pacific Century-Cable & Wireless HKT merger. Buy now -- into either firm.
Shareholders of Pacific Century Cyberworks (OTC:PCCLF - news), the Hong Kong-listed technology flagship of Pacific Century Group on Thursday unanimously approved a proposed merger with Hong Kong-listed Cable & Wireless HKT (NYSE:HKT - news), Hong Kong's largest telecom company.
Now, all that stands between the creation of a new multimedia heavyweight is the July 2 vote of HKT shareholders. In any case, HKT is 54.1% owned by Cable & Wireless (NYSE:CWP - news), whose board has already approved the merger, so the final vote is expected to go without a glitch. If all goes as planned, HKT will be delisted on Aug. 10.
That leaves investors a window of opportunity to buy into either of the pre-merger firms, an opportunity they should take advantage of, analysts say.
``We think there's tremendous upside to the merger -- I'd buy now...before now,'' underscores Hong Kong-based Lehman Brothers Internet analyst Michael Leary. The merger weds the content strength of Pacific Century with the subscriber base of HKT, a powerful combination, he says.
A Positive Pairing
Pacific Century announced on Feb. 29 that it had made an offer to acquire HKT, and that the offer had been accepted by the board of Cable & Wireless. Singapore Telecommunications (OTC:SGTJF - news) was mentioned as a possible challenger to Pacific Century for HKT, but that is ``pretty much dead in the water,'' says a Hong Kong-based analyst at a western brokerage.
But investor skepticism over the merger has kept the shares of Pacific Century and HKT from rising much, says Leary. Indeed, the day after the announcement, HKT shares were trading at HK$17.90, down HK$0.05, while Pacific Century shares were trading at HK$15.80, down HK$0.10.
Since the announcement, the stocks have generally moved in tandem, indicating shareholders believe the merger is good for both firms, points out the analyst at a western brokerage.
The merged company's greatest strength will be its cash flow: HKT enjoys over $1 billion annually in earning before taxes, Leary says. HKT also brings other crucial, less-tangible assets to Pacific Century, an Internet startup.
``HKT brings a lot of technology, management experience, and credibility to PCCW,'' says the analyst at the western brokerage.
Founded in August 1999, Pacific Century's strategic partners are: Intel (Nasdaq:INTC - news), the leading computer and networking technology company; CMGI (Nasdaq:CMGI - news), one of the largest aggregators of Internet brands and technology; Hicks, Muse, Tate & Furst, a leading global investor in the media and telecommunications sectors; Trans World International, the world's largest sports-content supplier; DaimlerChrysler Aerospace, a subsidiary of DaimlerChrysler (NYSE:DAX - news) and the leading satellite-technology company; and Legend Holdings, China's leading PC manufacturer and distributor.
Crucial Content Now
Pacific Century's promise: crucial content component. Central to that content will be the Network of the World (NOW) brand, which will initially offer five channels featuring sports, lifestyle, finance, weather and entertainment content. NOW is set to launch June 29, and will be accessible through the Internet at now.com, satellite television, and some Asian cable operators.
Viewers will need high-speed Internet access to view NOW, so there won't immediately be a huge amount of ``eyeballs'' going to the site, says the analyst at the western brokerage. Viewership will therefore build up slowly, and NOW's success will depend on how many new viewers it can add, says Leary.
NOW's success will also depend on how rich the content is, says the analyst at the western brokerage. Pacific Century has taken pains to ensure the content is high quality, however. The sports programming is in partnership with Trans World International, for example. Programming will initially be all in English, but Pacific Century plans to add Chinese-language programs -- filmed at a studio in Hong Kong -- after mid-year.
NOW will be broadcast globally, but will have regional shows along the line of MTV's music shows aimed at certain countries. Rather than appealing to a middle-of-the-road audience, NOW plans more ``edgy'' content to appeal to a younger, hipper viewership, says Leary. Its channels will have embedded links -- the Internet component -- that will allow viewers to view products and services from the shows' sponsors.
``Advertisers can both reach big audiences and track them,'' says Leary.
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